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Market Slide Prompts Canadian Regulators to Review Brokers Books

As markets began to tumble in August, the Investment Dealers Association of Canada (IDA), which represents and regulates 150 Canadian broker/dealers, took the highly unusual step of initiating a quick audit of the financial health of its members. The IDAs primary concern is that customers may be unable to make margin calls.This has been a bad few months for the industry, and at times like these we

Oct 01, 1998

As markets began to tumble in August, the Investment Dealers Association of Canada (IDA), which represents and regulates 150 Canadian broker/dealers, took the highly unusual step of initiating a quick audit of the financial health of its members. The IDAs primary concern is that customers may be unable to make margin calls.

This has been a bad few months for the industry, and at times like these we start to worry, says Greg Clarke, senior vice president for member regulation at the IDA.

When markets fall rapidiy, he says broker/dealers typically face problems on three fronts: falling prices on new issues, their own holdings, and exposure to clients problems.

Based on the lack of recent underwriting activity, Clarke says the IDA wasnt overly worried about IP0 exposure nor about firms own holdings since most had seen the warning signs. But exposure to clients problems was another matter.

We assume calls went out fast and furious on speculative margin portfolios, Clarke says. And we are hearing that requests are going out from brokers to customers to get money into the accounts ASAP.

Several brokers confirm that some clients were facing calls. Right now the firm is asking all brokers to report client positions on margin, says an RBC Dominion broker in Toronto. But its not necessary. Everyone already knows they have to stay close to margin activity in falling markets.